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Epidemics of American 1

Running head: EPIDEMICS AMERICAN CAPITALISM

Epidemics of American Capitalism

Parish M. Kaleiwahea

Wayland Baptist University

MGMT 5326

Dr. Tod Outlaw

June 16, 2010


Epidemics of American 2

Abstract

Capitalism and Globalization have been mixed with activists

arguing that it has led to enhance economic standards of living.

China, India, and East Asian countries are considered as having

financial growth because of their willingness embrace American

free enterprise economic practices and culture. However, critics

claim that American variance of capitalism has raised income

disparities, poverty, drugs, crimes and destabilized local

economies. They point to examples of Latin America and Africa

where the adoption of our free enterprise economic systems has

spread havoc and chaos. The paper advocates how Globalization was

a by-product of American Capitalism. The first section summarizes

the background of capitalism and globalization. The second

portion introduces the three epidemics that cultivated the

American version of the free market. The third section will focus

on the benefits and the criticism of American Capitalism. The

lastly the final section will try to refute the critics'

arguments that free enterprise is the only system that can

produce worldwide prosperity.


Epidemics of American 3

Epidemics of American Capitalism

The Berlin Wall: 1961-1989. Rest in pieces! (Eugene Elander,

2009) The author recaptures the historic day back in 1989 in his

article “And Berlin wall came tumbling down!” Elander recounts

emotions to a package with pieces of the wall received from a

friend who watched the demolition and at the same, time,

witnessed the fall of communist strangle hold that had suppressed

one country and its people for over 20 years. The fall of the

Iron Curtain represented a gigantic move towards the spread of

Democracy and the free market. Today, Capitalism has quickly

emerged as the leading economic system around the world.

This system is based on the premise that private

individuals or companies own the manufacture and production of

goods and services. This contrasts with the Communist control of

the economy, which guides the industry, agriculture, trade, and

commerce. An entrepreneur system is the theory that competition,

privatization, and income will bring wealth and success to the

entire population. There are different forms of capitalism, which

advocate minimum or reduced involvement of the state in the

economy. The most well liked type of capitalism that is being

advocated is the neo liberal economic system that has been

championed by the Western countries. However, regardless of

whether it is a dictatorship or commonwealth, any large-scale

political unit is a complex system. In this case, countries under


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Marxist rule loss control of their system since it did not

promote the stability it needed to manage and cultivate its

economy. Most countries have an organized central authority

either a family sovereign member, elected president or appointed

official; however, the authority of any head of state is always

embedded within economic, social, and political relations over

which he or she is selected to be responsible. Even so, the

nation show signs of many of the characteristics that the leader

or government body puts in place.

Nevertheless, the context of our history is rarely

acknowledged when looking for patterns or clues to find out what

was the root cause of trend. One could look back at the demise of

the Communist regime and try to understand their fall from grace.

What was the tipping point for Union of Soviet Socialist

Republics and Eastern European communist countries? What turning

point signs did they have to replace their radical socialist rule

that provided for their livelihood for decades? More importantly,

was it American arrogance to capitalism that enticed other

countries to embrace Democracy and United States citizens’ way of

life? This paper will examine what influences Globalization had

on capitalism and try to understand the relationship between the

two. It concludes by acknowledging the benefits the world had

because of American capitalism. Its relationship on Capitalism;

in addition, it will provide an overview of the arguments used by


Epidemics of American 5

both sides. It concludes that American Capitalism has been

beneficial for the world. Is it a merely a mirage that will lead

to an implosion on the world economy or is it the answer to the

world's population for the pursuit of contentment?

To understand the global shift in the paradigm, we must

expose some of the changes that brought us to this point.

Malcolm’s Gladwell’s book the Tipping Point is about change and

offers a fascinating and insightful way to understand why change

so often happens as quickly and as unexpectedly as it does. The

author claims that ideas, behavior, messages and products

sometimes behave just like outbreaks of infectious disease. The

Tipping point deals with social epidemics that surround us and

looks at history to pin point outcomes of today’s attitude

generation after generation everything from culture, music,

dress, and politics changes frequently in a very unusual way

"look at the subtle, the hidden, and the unspoken." (Gladwell

2002) What events caused the widespread of American Capitalism

throughout the world? The signs were understated, events were

overlooked, but in the end, Globalization was the root cause for

the new face American Capitalism, and that the tipping point was

slight, slow, and unwanted way of denying that people of the

world had accepted Democracy and have chosen that to be the only

way for prosperity?

Development of American capitalist beliefs


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Context Background

Capitalism as a concept has existed in one form or the other

in society. These concepts and theories have evolved with the

gradual transformation of societies. The Industrial Revolution of

the nineteenth century is considered the period, which is marked,

by the growth and expansion of free enterprise as an economic

ideology. Perhaps the earliest concept of modern capitalism was

formulated by Adam Smith. He believed that the drive for profit

could have benefits for society. Karl Marx and Max Weber also

contributed important ideas for the development of capitalism.

Marx was an opponent of capitalism because he believed that it

exploited the workers treating them as commodities. “The

exploitation is unethical in that it places limits on the

productivity and satisfaction of the workers by taking away ‘the

fruits of their labor’” (Quigley). He believed that an

international revolution led by the workers would eventually

topple the capitalist system. He also believed that the

capitalist system is inherently exploitive and breeds injustice.

Weber’s Thesis as the view that the rise of industrial capitalism

was facilitated in Protestant regions. (Becker 2007) Weber

identified the principles of capitalism that created efficiency

and effectiveness inside the economic system. He believed that

Protestants were instrumental in the development of capitalism

because of their belief in working hard to earn a living.


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The United States emerged as a major superpower after the

First World War and even consolidated its strength as the Second

World War ended. It exercised its muscle by establishing many

organizations to introduce the new form of Capitalism with an

American look. Institutions such as the United Nations,

International Monetary Fund and the World Bank were created with

the goal to protect American business among other trading

nations. Additionally, it gave the United States an upper hand

when dealing with developing countries especially if the country

required capital to invest in their county’s economic growth.

Robert Skidelsky article: New Face of American Capitalism and its

impact of the world explain the new world leader’s role for the

United States.

It is globalization, rather than IT, which most

distinctively displays the new face of American capitalism.

Globalization is an American process driven by distinctively

American ideas, pressures, and policies. It is routinely and

placidly defined as ‘economic integration across frontiers’

But its central concrete feature has been the massive

transfer of manufacturing capacity from high wage to low

wage countries. A new global division of labor is emerging

in which developed countries concentrate on increasingly on

services, and developing countries like China act as

manufacturing assembly plants at fraction of western wages.”


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(Skidelsky 2007)

The Global economy wears the mask of American capitalism. For

many it could lead to their country catapulting out of pervert

and into the wealth and prosperity.

The arrival of globalization has accepted the free

enterprise concept. Whereas, trading of good services are no

longer contained in the sandbox but can be available twenty fours

a day 365 days of the year. The technology boom in the early 90s,

continue to flourish in the new millennium. Business expansion is

almost limitless because it allows real time data to exchange

hands in millisecond instead of months for a transaction to get

approved from one country to the next can now be mitigated in

some case less than two hours. The globalization of today needs

to be visualized in much broader conceptual framework,

emphasizing the interaction between diverse economic, ecological,

political, socio-cultural, and technological factors. In short,

we can say that it is “an overarching international system

shaping the domestic politics, culture, economy and foreign

relations of virtually every country” (Friedman, 2004).

American Capitalism Three Tipping Points

Closing the door, breaking the wall, and the invitation

American Capitalism is way we conduct our Global business

today, but it continues to intrigue as it was at its time of

inception. However, can one point to its origin? Examining its


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impact with the world today it can be argued that the success of

the spread of democracy can be attributed to three social and

political epidemics throughout world’s history.

In the early 1500’s China had the largest Navy fleet in the

world. Chinese Admiral named Zheng He commanded a fleet of over

300 vessels and 28,000 men compared to Spain’s famous explorer

Christopher Columbus. The Chinese ships were far superior to any

nation during that era. Between 1405 and 1433, Zheng traveled

wildly throughout world and exchanged commodities and ideas among

neighboring nations. However, by 1430 the new emperor abruptly

ended all of the trade and exploration. One of the first

indicators of the new Chinese ruler was what Kennedy calls

China's decision under the weak emperors who followed Yung

Lo "to turn its back on the world" (Kennedy 7). Kennedy when

on to say “In the 15th century, China was technologically

superior to Europe in many fields. In 1436, an imperial

edict was issued forbidding the construction of ocean going

vessels. Foreign missions and voyages were banned. Trade and

even contact with foreigners were officially discouraged

overall; China remained isolated from the rest of the world

between the mid 15th and the mid 19th century.”

Fairbank says that "Ming China . . . missed the boat of modern

technological and economic development" (Fairbank 138). Kennedy

says "a key element in China's retreat was the sheer conservatism
Epidemics of American 10

of the Confucian bureaucracy" . . . [which] wished to "preserve

and recapture the past, not to create a brighter future based

upon . . . overseas commerce" (Kennedy 7-8). If China continued

it dominate the sea-lanes and trade some can argue that the

exploration history would be different from today’s textbooks.

China’s emperor to cut all ties with the West edified other

nations to take advantage of Navy expeditionary, trade, and

capitalistic opportunity in the world market.

The end of the Cold War brought the obliteration of the

Communist empire; more importantly, it provided a new and hopeful

beginning for the entire world. After continued silent war

propaganda among the super powers the United States and the

Soviet Union had reach a tipping point of despair. After

countless attempts to maintain social, political, and economic

prowess the Soviet Union could no longer live in mediocrity. It

decided to pursue America’s style of Governing privatization and

slowly transition towards democracy through internationalization,

globalization, and Americanization that demanded the use of

American Capitalism for industrial and economic growth for the

former Soviet regime.

China’s appointment to the World Trade Organization in 2001

was regarded at the time to be a significant economic achievement

for China. It signified a hybrid epidemic since two countries

would benefit the most from its induction into the WTO. China’s
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struggle as non-trading member since 1978 when it first opens its

doors for Global business ventures. By not allowing China into

the WTO, their growth rate crawled almost to a standstill.

China’s WTO accession has huge impact in the domestic, regional

and world economies. China accession to WTO stood out since it

was the only nation in the bloc that followed communist ideology.

The country joined a body that embodies free trade and

liberalization, which was clearly in conflict with communist

ideologies. Since its induction of the WTO, the Chinese

government continues to embrace and practice a market economy,

and it has become very competitive. In addition, China was also

granted a grace period over which it would carry out reforms in

its financial sector. A timetable was put in place indicating the

liberalization program across the regions, which would eventually

see the sector opened to foreign institution by 2006.

(Hansakul, Syetam, 2004)

The government also opened up insurance industry to foreign

firms. Foreign insurance firms were allowed greater geographical

coverage and 50 percent joint ownership by June 2003, there were


Epidemics of American 12

about 11 foreign insurance firms. The table below shows the

number of foreign owned financial institutions in the country by

June 2003.

(Hansakul, Syetam, 2004)

Chinese decision to shut out the world, the fall of Communism,

and WTO invitation for China carved the sculpture of American

Capitalism these events, which seem subtle, unrelated, and

without incident encapsulate our continued dominance of the

Global economy. However, have citizens of the United States

considered the impact to the spread of American Capitalism

pandemic.

American Capitalism Benefits

Decentralization & Developing Country miracles

One of the key features of the capitalist system is that

decentralization allows the use of many innovative solutions for

problems. Competition leads to companies finding superior

solutions that can satisfy the aspirations of the world economy.

Socialism or communism creates flaws because it retards

creativity and innovation. Any individual that has a brilliant


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solution cannot experiment with in inside a centrally planned

economy. The government sets the targets for the achievement of

production that breeds corruption, stagnancy, and static growth

for industries. Limited intervention of the economy has been

criticized by some schools of capitalism. They argue that this

brings recessions and collapse of the economy. Some researchers

insist that the Great Depression was caused by the flawed

policies of the Federal government. Latin America during the

1980s and 1990s witnessed a wave of free market systems being

implemented. The result was that state owned enterprises that had

been heavily subsidized and protected by the government now had

to open themselves to competition and profit. They were inclined

to provide superior services and goods for the citizens.

Empirical studies conducted of Latin American nations found that

private organizations increased their efficiency and

effectiveness due to privatization. Unproductive workers were

laid off which reduced the costs of these organizations. It also

created a new group of consumers because of income increases and

new job opportunities. The GDP of individual nations began to

increase while inflation was curbed due to the market reforms

(Federal Reserve Bank of Dallas, 2002). The volume of sales

intensified because of the creation of a huge consumer market.

The governments also witnessed benefit in the form of reduced

expenditure after the closing of subsidies.


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The Chinese economic miracle has been due to the adoption of

free market system. The Chinese government initiated a massive

program of economic liberalization and opening its markets in the

late 1970s by abandoning the socialist planning (Parsad, 2007).

The economy has grown annually with a rate of ten percent.

Poverty has been reduced with income generated for a large

section of the population. Agriculture was liberalized and

privatized by the government as it moved from the communist

system. State industries were given considerable degrees of

autonomy and freedom to make decisions. Private industry was

encouraged in the services, retail, and manufacturing sectors

(Parsad, 2007). Banking system was implemented while foreign

direct investment was invited inside the country. Exports and

trade comprise the bulk of the Chinese economic performance.

Investments in agriculture and industry have led to the country

acquiring tremendous resources in exporting and catering to its

huge consumer market. Another nation that has become one of the

largest economies in the world is India. During the early 1990s,

the government abandoned its years of socialist and centralized

planning that had created inefficient and static industries.

Economy was on the verge of bankruptcy when the markets were

opened. Foreign investment was invited while the banking and

services sectors were organized along the lines of modern

nations. Industrial productivity increased with the rise of an


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Indian middle class. India and China have been the leading

examples of how capitalism can breed efficiency and productivity

in the economic system. Poverty rates have been significantly

declined because of the economic reforms implemented in China and

India (Srinivasan, 2006). Moreover, a study by The European

Journal of Comparative Economics illustrates a side-by-side

comparison of China and India successfully integrated into the

world economy.

Balance of payments statistics show that a large part of

China’s payments for services are linked to merchandise

trade (transport, insurance, royalties, Table 4). In

2006, China accounted for 5% of the international payments

for transport services and for 8% of payments for insurance

services. India has taken a very strong position in

computer and information services exports, with almost one

fifth of world exports. Its payments for transport services

also increased (to 3.7% of world total in 2006).

(Bensidoun, Lemoine, Ünal 2009)

Table 3 - China and India: degree


of economic openness

China India
In percent 1995 2006 1995 2006
Exports of goods and services/GDP 23 40 11 23
Exports of goods/GDP 18 37 9 14
Exports of services/GDP 5 3 3 9
Manufactured exports/manufacturing 51 93 39 60
Services exports/services value 8 9 5 17
FDI inflows/GDP 5 3 1 2
Epidemics of American 16

FDI outflows/GDP 0 1 0 1
Source: World Bank (2007b).

Criticism of American Capitalism

Promote exploitation and unfairness

Capitalism has been criticized because it is considered to

breed exploitation and injustice according to socialists and

communists (Nozick, 1998). Others believe that some form of

government regulation and interference is vital to prevent

recessions and depressions. Marxism was a leading critique of

capitalism that advocated the use of violent revolutions by

workers to overthrow these systems. Some sects of religions have

also spoken out against capitalism because it promotes interest

and materialism. One criticism leveled against capitalism is that

it leads to the creation of income disparities. It also tends to

favor some segments of society at the expense of marginalized

communities. Crime, drugs, unemployment, social dislocations, and

other social problems also increase under a capitalist system.

The free market system leads to the creation of monopoly by the

private organizations (Rea, 2007). The market becomes dominated a

group of organizations which concentrate wealth and power in

their hands. Imperialism and neo colonialism are termed as being

promoted under the pretext of the capitalist system by anti

globalization groups. This has led to the generation of conflicts

and repression of workers. There are also concerns that


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capitalist drive for growth and productivity could come at the

cost of the destruction or deterioration of the environment.

Critics of capitalism argue that the opening of domestic markets

with the global system leads to the destruction of local

industries, which are unable to compete with international

companies. They argue that developing countries have become

dumping areas for the goods that are manufactured by

multinational organizations. There have also been concerns that

capitalist economic policies have caused extensive social

disruptions in Latin American and African societies.

Empirical research conducted of Latin American neo liberal

reforms found that they had retarded the industrial growth of

local organizations (Zettelmeyer, 2006). Colombia experienced

stable and sufficient economic growth before embracing market

reforms. Critics say that the opening of markets made the

Colombian economy vulnerable to the volatilities and fluctuations

of the world market. Latin American states also witnessed unequal

distribution of resources after embracing market reforms

(Zettelmeyer, 2006). The drive for profit has been criticized

because it comes at the expense of marginalized communities.

Russia and Eastern European states faced numerous problems as

they began the transition towards market-oriented economies.

Unemployment rates increased while crime began to soar in the

cities. Social upheavals were also witnessed as thousands of


Epidemics of American 18

educated engineers, doctors, and scientists did not have jobs.

Inside countries like Georgia and Uzbekistan, living standards

have fallen while industrial production has been sluggish due to

the inadequate reforms. Soft budget controls and administrative

controls were blamed for the economic collapse in the post

communist period (Gaidar, 1998). The number of scientists in

Armenia declined dramatically because of the rapid unemployment

inside the country. Perhaps the greatest decline was witnessed in

Russia during the 1990s as its economy began to collapse. The

rise of the Russian mafia and corruption spread havoc and chaos

in the economic system. Poverty, homelessness, unemployment,

crime, and violence increased in the cities of Russia. Market

reforms were disastrous for Russia because it led to the creation

of criminals who took advantage and began to purchase the vital

strategic assets of the country (Cooper, 2008). Most of the money

was stolen and shipped to offshore banks in the West.

Refuting the critics

Addressing the glass half full

Despite the inherent flaws in capitalism, the opening of

economic markets and trade liberalization has proven to be

beneficial for countries. The economic indicators of countries

with economic freedom show an increase in productivity and

efficiency as opposed to closed economies. The integration of the

global economy has created many benefits because this has led to
Epidemics of American 19

the transfer of technology and investments inside developing

countries. Since the mid-2000s, both countries have rapidly

expanded their investment abroad. One of the goals of the large

Chinese and Indian firms, which have pursued this strategy, is

to acquire advanced technology (through mergers and

acquisitions).(Bensidoun, Lemoine, Ünal 2009)

Figure 3 - Direct investment abroad by


China and India (billion US$)

25
22 China
20

14 India

10

0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06
07

Source: UNCTAD
(2007).

It has also led to the efficiency and productivity of economies.

The private ownership of the means of production leads to

efficiency and effectiveness as people have diverse choices to

choose their career paths. Foreign investment for any developing

country can be beneficial as it allows the creation of new jobs


Epidemics of American 20

and improved working conditions as compared with local companies.

It also eventually leads to the path of freedom despite the fact

that it has flourished under authoritarian regimes. Countries

like South Korea, Taiwan, Chile, etc had authoritarian

governments that presided over economic miracles. Once they had

developed their economies, the political system became more open

as it allowed multi parties and democracy to firmly root itself.

The intellectual growth and progress of the West in the

nineteenth century was mainly due to the principles of the free

market. One of the greatest strengths of capitalism has been

decentralization as it allows companies and organizations to

strive hard in order to maintain their competitive edge. The

examples of India and China, which had state planned systems,

previously are sufficient to demonstrate the benefits of

capitalism as a viable economic system.

Conclusion

Capitalism is an economic system where private individuals

or organizations control the means of production. This system has

been in one form or the other but it was the nineteenth century

when the ideas of free markets were developed. Adam Smith is

considered one of the pioneers of the ideas of free markets who

believed that the drive for profit could benefit society. Marx

was a bitter critique of capitalism who believed that it

exploited the workers as another commodity. The neo liberal


Epidemics of American 21

economic school of thought is the most prevalent in the economic

system of the West. It advocates minimum government interference

or regulation inside economics.

American Capitalism has many benefits despite the extensive

criticism leveled towards it. It creates the most efficient and

productive economic system. It is based on profit, competition,

privatization and recently globalization. It also eventually

leads to the political freedom. It stands for economic freedom

because it allows individuals to shape their own destinies by

choosing different career paths. This is difficult to achieve in

traditional or socialist societies. Empirical studies conducted

of Latin American nations found that private organizations

increased their efficiency and effectiveness due to

privatization. Unproductive workers were laid off which reduced

the costs of these organizations.

The Chinese government initiated a massive program of

economic liberalization and opening its markets in the late 1970s

by abandoning the socialist planning. In addition, China’s

selection to be a member of the World Trade Organization created

free enterprise reforms that would lead to enhance integration

and the increased presence of foreign firms in the Chinese

economy. India was an another example of riding the coat tails of

American Capitalism which led to a new balance of power in the


Epidemics of American 22

world economy. With launch of Globalization India doubled its

outsourcing services by double in a six-year period.

What if China decided not to shut its doors to the outside

world in the 15th century and decided to take control of the

seven seas? Let us face it, if certain events tipped the other

direction, this conclusion may have had a different spin to it.

However, the fact that Americans were able to take advantage of

the three pandemic social and political events of our past,

American Capitalism was able to take advantage Global market we

enjoy today. Only time will tell how long Americans can enjoy the

fruits of our super power position and our democratic

capitalistic ideology, but until then this country must continue

to embrace change and innovation.


Epidemics of American 23

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